SM Energy: Mitigate, move forward

Santa Maria Energy is champing at the bit to get final approval to expand by 110 wells its 26-well pilot project in the Orcutt Hills.

That stands to reason. The expanded project is expected to produce more than 3,000 barrels of crude oil a day. With prices at around $100 a barrel, there is potential daily gross revenue to the company of over $300,000.

That approval is delayed because the Santa Barbara County Planning Commission directed staff to analyze stricter greenhouse-gas emissions standards for the project, to reduce the impact on climate change.

One percent of that gross is not too much to ask in order to increase mitigation to 90 percent of the project’s greenhouse-gas emissions.

In its peak-production year of 2015, the project will generate about 88,000 metric tons of greenhouse gases, mostly from generators used to create steam to be injected into wells to loosen the oil. The controversy is over how much of that should be mitigated, mainly through the purchase of emissions credits.

County planning staff made the case for Santa Maria Energy to mitigate or offset 29 percent of the greenhouse-gas emissions, and the company has agreed to that amount. SB CAN and other environmental advocates urged the commission to require a 90-100 percent reduction.

A new draft recirculation document, issued this month by the county, makes it very clear just what we are asking for, and what Santa Maria Energy so far has been willing to offer. The county’s document analyzes four alternatives for reducing or offsetting the greenhouse-gas emissions, including the 29 and 90 percent alternatives.

The document also explains three categories of emissions reductions. One is onsite reductions/flare gas of about 16,000 metric tons, which have already been agreed to, and are the same in each alternative and in each future year. Another is cap-and-trade purchased allowances, which are required by state law, and increase each year as the project produces less oil for each unit of steam used. The third is additional credit obligations, which is what would be required by discretionary action of the county.

The additional credit obligations represent what the county can do to address the climate-change impacts of this project, which probably is the largest potential greenhouse gas emitter in the county. In the 29-percent alternative, the oil company would need to purchase about 3,000 metric tons of credits in the first year of production. After that, the agreed-to and state-mandated programs would achieve all of the required reductions.

In the 90-percent alternative, the company would need to purchase additional emissions credits of about 55,000 metric tons in 2015, declining steadily to zero by 2027. Credits are selling for about $11 per metric ton. Page 31 of the county’s document states the average cost of credits per barrel in the 90-percent alternative would be 92 cents. That’s less than 1 percent of the gross revenue of around $90 to $100 per barrel.

Although we don’t have access to detailed financial statements for Santa Maria Energy, according to biz.yahoo.com, profit margins in the oil and gas drilling and exploration industry are running at 7.2 percent. Knocking 1 percent off that is not insignificant, but is not too much to ask when considering the consequences of climate change.

Let’s mitigate these emissions, setting a good standard for future oil production projects in our county, and move forward.

Published August 9, 2013 in the Santa Maria Times. Ken Hough is executive director of Santa Barbara County Action Network (SB CAN). He can be reached at ken@sbcan.org. Looking Forward runs every Friday in the Santa Maria Times, providing a progressive viewpoint on local issues.